A world reserve currency, used for international payments, foreign exchange reserves, and investments, is a currency of great importance. For over 80 years, the U.S. dollar has held this status. Throughout history, six major world currencies have emerged: Portugal, Spain, Netherlands, France, Great Britain, and the United States, with Spain holding the longest reign as a world currency.

How the US Dollar Became the Dominant World Currency:

Following World War II, the United States possessed the majority of the world's gold reserves. It established trust by guaranteeing that one ounce of gold would be exchanged for 35 US dollars, effectively pegging the value of the dollar to gold. This assurance encouraged countries to conduct trade in dollars, as they could always convert their dollars into gold. Additionally, Saudi Arabia, the world's leading oil producer, played a crucial role. President Franklin Roosevelt struck a deal with the Saudi King to sell oil to the U.S. in exchange for security, leading other nations to adopt the dollar for oil transactions. The excess oil revenues were stored in the U.S. as petrodollars, functioning like bond investments.

Potential Causes of a US Dollar Collapse:

The collapse of the US dollar is not a certainty but can be considered based on several factors. China and Russia have been accumulating significant leverage over the international monetary system.

1. Sanctions and Limited Access: Russia, the most sanctioned country globally, faces restrictions on trading in US dollars, with many of its companies being removed from the SWIFT system, a global money transfer mechanism. This limitation has led Russia to explore alternatives, such as encouraging countries to pay in Russian Ruble, potentially leading to the rise of the Petro Ruble.

2. China's Economic Influence: China has extended substantial loans to 165 countries, and many of these countries are unable to repay these debts. China could leverage this situation by offering discounted interest rates in Chinese Yuan amid global economic crises. This move would reduce reliance on the US dollar as a currency reserve, with some countries, including Pakistan, already opting to trade in Chinese Yuan. Furthermore, China has engaged in bilateral currency swap agreements with over 40 countries, worth more than three trillion Yuan.

3. Potential Shift in Oil Trade: Saudi Arabia, a key player in the global oil market, is contemplating selling oil in Chinese Yuan, which could further diminish the US dollar's dominance in oil transactions.

While the collapse of the US dollar as the world's reserve currency is not certain, there are factors suggesting a potential shift. China and Russia are actively working to reduce reliance on the dollar in global trade. Nevertheless, the US remains a dominant economic force with unparalleled trade capabilities and global trust. China's opacity may pose challenges to gaining full confidence as an alternative reserve currency. The future of the world reserve currency status remains uncertain, with multiple factors at play.